Provided by Mike Smith, and WFA’s friends at CPS Horizon.


Thanks to current and upcoming changes to tax law, estate planning is more important than ever. Making sure your wishes for the distribution of your wealth, no matter the size, are executed efficiently requires some planning.

In addition to the basic documents (a will, health care proxy, powers of attorney and perhaps a form of a trust) one should consider various types of financial assets or strategies to maintain not only their standard of living while alive, but also the passing of wealth or assets to beneficiaries. 

An irrevocable life insurance trust (ILIT) is an irrevocable trust that contains provisions specifically designed to facilitate the ownership of life insurance policies. The ILIT is both the owner and beneficiary of the life insurance policy, which typically insures the life of the grantor. If structured properly, there can be tremendous tax savings and other advantages.


Once funded with life insurance proceeds after the grantor’s death, an ILIT can: 

  • Provide cash for your beneficiaries, usually free of income and estate taxes. This cash can, in turn, be used to pay any estate tax due from the estate as well as income tax due from the beneficiaries relating to IRAs, 401(k)s and other qualified retirement assets. 
  • Protect the trust assets from your beneficiaries’ creditors.
  • Provide effective management of your assets after your death. A great consideration if inheritance will provide financial support for a special needs child or adult. 
  • Provide liquidity for estate equalization among heirs, especially when the estate is made up of assets that may be hard to divide, including business interests, real estate, art, or other collectibles.

Existing life insurance policies should be reviewed for consideration of ILIT creation before you consider the purchase of a new life insurance policy with less restrictions.